More Pain Ahead for Ailing Nokia

By Gustav Sandstrom

Poor Nokia. The ailing Finnish handset maker seems to lurch from one crisis to the next.

Today it announced a massive management shake-up and job cutting plan in yet another effort to claw back lost profits in its struggle against Asian and American rivals. But analysts doubt the measures will be anything like enough to turn around the company’s fortunes.

In February 2011, Nokia’s Chief Executive Stephen Elop, in a notorious memo to staff, compared his company to a man standing on a burning oil platform, calling for drastic action to transform the business. After more than a year of intense restructuring efforts and a number of downgraded earnings outlooks, investors might have hoped the mobile phone maker would be a step closer to steadying its course.

Not so. Today it shook the stock market with yet another profit warning and a severe downsizing drive. The company will close several R&D and production sites, including the manufacturing facility in Salo on its Finnish home turf. By end-2013, it expects to cut around 10,000 jobs or almost a fifth of its global workforce of 53,000 excluding telecom equipment joint venture Nokia Siemens Networks.

Mr. Elop’s management changes are also profound. According to analyst Ben Wood, from CCS Insight, the departure of long-serving heavyweights Niklas Savander and Mary McDowell from the Markets and Mobile Phones top spots marks “the end of an era” for Nokia.

Also being replaced is marketing chief Jerri DeVard, who was brought in by Mr. Elop himself to boost the Nokia brand less than two years ago.

The question is whether Nokia’s latest overhaul, as far-reaching as it may appear, will be sufficient to maneuver the Nokia tanker in a new, more positive direction or merely amount to a reshuffling of the deckchairs on her deck.

The handset giant’s profits have been slumping since rival Apple Inc started selling its iPhone in 2007.

According to research firm Gartner, South Korean manufacturer Samsung in the first three months this year replaced Nokia as the world’s largest mobile device vendor, as the Finnish company’s share of the market dropped to 19.8% from 25.1% a year earlier.

Nokia’s new Lumia smartphones, powered by Microsoft’s Windows Phone software, sold in surprisingly low numbers in Western Europe and failed to compensate for slumping sales of its old Symbian handsets, Gartner analyst Anshul Gupta said last month when commenting on Nokia’s decline.

Meanwhile, Nokia’s investors have seen the share price collapse. The stock has shed over 90% over the past five years, and lost almost half its value year-to-date after Thursday’s news sent it to a 16-year low.

While Nokia Thursday said its cost-cutting and strategy overhaul should help the company become profitable again, equity analysts remained unconvinced.

“Without some clarity on the revenue line, even the big headline cost cuts may not be enough to get back to profitability under the company’s current plans,” brokerage J.P. Morgan said in a research note. “With another iPhone out later this year, the high end of the market is looking increasingly difficult,” it said.

“We…see continued potential downside to the recent stock price and maintain our underperform rating,” research firm Bernstein said in a note to investors.

Still, Nokia’s painful capacity reductions may at least be a rational move, said CCS Insight’s Ben Wood. “The job cuts are necessary,” he said. “Nokia needs to resize to reflect its size in the market.”

With the help of its promising new line-up of top managers and strategic moves to boost its edge in imaging features, a down-sized Nokia could potentially turn things around, Mr. Wood said.

But, he added, the main question remains: When does Nokia reach the bottom? It seems it hasn’t just yet.

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